The New Equilibrium – And What That Means for Investors
Out with the old “new normal” and in with the new equilibrium. There is no old normal or new normal to go back to.
Just when we thought we were out of the COVID woods and mask free, cases are rising at an astounding rate. Now what?
The picture above is a public health recommendation from the 1918 Illustrated Current News, New Haven, CT.
Between 1918 and 1920 over 500 million people were infected with the Spanish Flu.[1]
Unbelievable that many of the recommendations to prevent influenza 100 years ago are the same today. I especially appreciate the recommendation to Avoid Worry, Fear and Fatigue. Today we would say that worry, fear, and fatigue can lead to a compromised immune system.
The death toll from the “global influenza” ranged from 17 million to 100 million people.
Global record keeping 100 years ago was a challenge. We will never really know the exact number.
Today 194 million cases of COVID have been reported and 4.16 million deaths.
With the Delta variant and less than half the population in the U.S vaccinated, are we in for another wave?
In the last couple of months as COVID restrictions lifted, economic growth strengthened. Consumer confidence increased. Restaurants and bars opened and people in the hospitality sector are going back to work.
Will the current rise in COVID cases dampen the recovery?
Even though we have seen many positive results in a few sectors of the economy we are far from pre COVID levels in terms of employment .
The wild card in a rosy outlook for the economy continues to be COVID. Can the economy withstand another COVID shock?
Equilibrium is about balance.
Balance is when restaurants are operating at full capacity and there are enough employees to keep the restaurant open and customers happy.
Balance is when the shower head arrives in a week instead of never.
Balance is when that thingy you need is in stock.
Right now, our economy is out of balance. Also known in economic terms as disequilibrium.
Is there a shortage of workers? Or have employees decided to go in a different direction?
I read Disneyland is offering a $1,000.00 signing bonus for housekeepers.
Is this the new paradigm shift? A choice between cleaning the hotel room yourself or paying directly for housekeeping services? Like room service?
What is the post COVID world going to look like?
I believe we are in the beginning of a longer-term structural shift in the economy.
More people want to work from home and have no desire to return to an office environment. [2]
I’m not surprised employees do not want to return to “open seating” plans at work.
The ONLY benefit of open seating was the money employers saved by treating employees like brainless sardines. My apologies to the sardines.
I don’t believe stimulus checks are the reason fewer people are returning to work, or that they don’t want to work.
It isn’t that at all.
COVID has created fissures, and possibilities. The possibility to recalibrate our lives.
In economics the term disequilibrium is used to describe an imbalance between demand ( people want to go out to eat ) and supply ( not enough wait staff to serve the customers ).
According to economic theory disequilibrium resolves over time.
But this time? Hello Carmen Reinhart …Is this time Different?
In the restaurant world, restaurant employers may offer higher wages and benefits to bring workers back.
If at the same time they pass on wage increases to the consumer by increasing prices, they may lose customers, thus reducing the need for high wage staff. How much can you charge for a Grand Marnier Souffle? [3]
But what if there is no hourly wage high enough to bring workers back? Is that possible? Have all those people have disappeared?
What should investors do?
If the economic recovery starts to sputter it is likely stock prices will fall. No idea how far prices will fall or when, that is the uncertainty surrounding an end to COVID.
As COVID is a global virus I suspect that most sectors will be impacted.
Stay diversified.
When stock prices fall it is a good time to buy. Buy and Hold.
Have some cash and patience on hand to buy stocks when prices drop.
The economy will find balance. I can’t say new balance because that is a shoe.
I’m calling it the New Equilibrium .
Investors, get your cash ready!
[2] THE EMPLOYMENT SITUATION — JUNE 2021 (bls.gov)
[3] Grand Marnier® Souffle | Allrecipes
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